Canaccord Genuity Ahead of the June 29 release of Corus Entertainment Inc.’s third-quarter financial results, Canaccord Genuity analyst Aravinda Galappatthige cut his financial expectations for the remainder of the year, pointing to “slowing” economic conditions and “a likely cautious stance from advertisers.”
“We also believe the supply chain-related headwinds in verticals like auto are ongoing,” he said in a research note. “We are also projecting high opex growth in TV for at least one more quarter owing to increasing programming costs. Inflationary conditions could also affect G&A. We have thus lowered our fiscal 2022 adj EBITDA estimate from $515.2-million to $498.7-million. F2023 is only modestly.”
For the quarter, Mr. Galappatthige is projecting revenue of $418.4-million, up 3 per cent year-over a with both its radio and television segments seeing gains of 4 per cent. His adjusted EBITDA projection of $128.3-million is a decline of 2 per cent.
“With the balance sheet now at 2.7 times net debt/LTM [last 12-month] EBITDA and heading lower, Corus’ risk profile is improving quickly,” he said. “While Q3 may not see a change, we still expect leverage to ease to 2.5 times net debt/LTM EBITDA by Q1/23. We would also be curious to see the level of share repurchases during Q3. Recall, the company had set up an NCIB to repurchase 5 per cent of the class B float, translating to 9.7 million shares.”
Maintaining a “buy” rating for Corus shares, Mr. Galappatthige cut his target by $1 to $6. The average is $7.18.
“In light of the notable sell-off in the broader markets as well as Corus’s closest comps and the aforementioned estimate revisions, we have reduced our target price by $1 per share,” he explained. “We now apply 4.25 times EV/EBITDA 2023 (4.5 times previously) to establish our target. We note that U.S. comps like Warner Bros. Discovery and AMC Networks trade in the 4.5-5.5 times EV/EBITDA range. We believe Corus will continue to trade at a discount to these two peers. However, we maintain our BUY rating on the stock, owing to its solid value credentials, in particular its compelling FCF yield, against the backdrop of easing balance sheet leverage.”